Real estate market. Smokin' hot.

[fintstone]

If the tech bubble collapses and many of the west coast home prices quickly revert to national norms...what would that do to those of you with the million+ dollar bungalows? Nothing? Or are many of you so invested in them as your retirement plans that it would destroy your finances for decades and preclude your retirement?

[aigel]

Originally Posted by Deschodt

Well you're in the bay area now, wait a week and let us know where you're at ;-)

The question is, where to do you go ? I'm sure you could buy something nice in S Dakota, but.... I used to think the same as you, but there aren't too many places I'd want to live that are substantially cheaper...

My plan is to move to a small college town where my wife works at the Uni and I hang out. Oregon, Colorado come to mind. It won't be cheap either but 500k still buy you a nice place in other states. This is a semi retirement possibility already - some crazy housing prices may just accelerate. Weather will not be on par but doable! College towns are a good opportunity because they are not completely void of culture and diversity.

G

[aigel]

Originally Posted by fintstone

If the tech bubble collapses and many of the west coast home prices quickly revert to national norms...what would that do to those of you with the million+ dollar bungalows? Nothing? Or are many of you so invested in them as your retirement plans that it would destroy your finances for decades and preclude your retirement?

I think many here bought long time ago and have their homes paid off, so it won't matter. It didn't matter last burst either. The people in trouble are the constant "moving up " crowd and the ones buying toys instead of paying off their principal!

[jyl]

The $1MM bungalow - or rather, $1.5MM in some parts of the Bay Area - is undoubtedly a major part of the retirement savings for many Californians.

But why should those houses revert to national average pricing, even if the tech bubble does collapse? When the tech bubble collapsed in 2000, core Bay Area house prices only declined about -15%. In the Great Recession, ditto. (Core means what we actually think of as the SF Bay Area, so excluding distant inland communities like Livermore etc.)

Does the rest of their retirement portfolio have downside risk of only -15% or so, in the event of a very major market / economic crash? I doubt it.

[Deschodt]

+1 on the 2 above posts... That area is somewhat space limited. Same observation during the last 2 recessions, small downside, mostly stabilization of prices for a couple years... Then it goes up again.
Rental prices are so crazy in the city that buying makes sense even at those prices...

[speeder]

Investing in CA. RE for a place other than to live in has been a game for people with more of a stomach for risk than me the last few years. Just when I think it can't possibly go up any more, it jumps another 20% annually.

I understand the global forces that are fueling this boom but I'm not willing to bet my $$ on when it will lose steam. The prices in Venice, CA. or the SF Bay Area have been absolutely defying gravity for years now. I've noticed the same thing but with much milder rates of appreciation in other desirable places such as Seattle and Portland. It just keeps going up.

It's crazy to read the date stamps and comments from the beginning of this thread until now.

[Deschodt]

I think the bay area RE market is kinda similar to the early 911 one... Crazy, hot, annoyingly expensive... Goes up and up, stabilizes, might occasionally dip but long term it will keep going up, for the same reasons... Nice place to live (nice car) and limited supply. Even in a recession, the nice stuff will sell well, or won't need to be sold at all... the average offerings might lose ground. But if you buy the nice stuff you won't lose... Not many new houses FS with water views of the city from, say, Tiburon. Not many superb new 911S either... ;-)

[fintstone]

Probably the case....although, I thought similar regarding Vegas (because the city cannot expand due to Fed ownership of surrounding land)...which was not nearly so inflated as CA last bust. Many houses still have not recovered above about 60-70% pre crash prices 8 years later. So, on a $1M house...one would still be $400k underwater. Tough nut for many.

[nostatic]

Originally Posted by speeder

Investing in CA. RE for a place other than to live in has been a game for people with more of a stomach for risk than me the last few years. Just when I think it can't possibly go up any more, it jumps another 20% annually.

I understand the global forces that are fueling this boom but I'm not willing to bet my $$ on when it will lose steam. The prices in Venice, CA. or the SF Bay Area have been absolutely defying gravity for years now. I've noticed the same thing but with much milder rates of appreciation in other desirable places such as Seattle and Portland. It just keeps going up.

It's crazy to read the date stamps and comments from the beginning of this thread until now.

We rent. My ex still has our house and she's in good shape. In retrospect we should have kept my wife's tiny house in Highland Park that she bought at the peak of the market in '06 but we figured it wasn't going to come back quickly. And now HP is a totally hot area.

I"m renting in Santa Monica because it makes my commute short and relatively painless. And it is a nice area. No way I'd buy here - $1.5M minimum to get a small house. And at my age, I'm never going to pay it off, and not clear that I'd get much equity even given what the market may do.

The reality is that you're only renting anyway. If you're purchasing later in life, "owning" a house is a benefit to your kids, much less so to you. At least when I run the numbers that's how it comes out. The myth of the "American Dream" and the pressure to "own your home" is strong, but making less sense for many these days.

[look 171]

Vegas does not have the industry to support all the growth but its getting better. CA has he industry giant to support and there is not too many places to grow but expansion outward just like we have done in the past 60-100 years.

People are still coming from all parts of the US and the world. I meet some new neighbors in our neighborhood and of all the ones I have met, only 1 is from CA. All of them are from somewhere east of us. Out of those, they have only been here for 10-15 years max. That's really the main drive of the housing market. They have to live somewhere.

[look 171]

Originally Posted by nostatic

We rent. My ex still has our house and she's in good shape. In retrospect we should have kept my wife's tiny house in Highland Park that she bought at the peak of the market in '06 but we figured it wasn't going to come back quickly. And now HP is a totally hot area.

I"m renting in Santa Monica because it makes my commute short and relatively painless. And it is a nice area. No way I'd buy here - $1.5M minimum to get a small house. And at my age, I'm never going to pay it off, and not clear that I'd get much equity even given what the market may do.

The reality is that you're only renting anyway. If you're purchasing later in life, "owning" a house is a benefit to your kids, much less so to you. At least when I run the numbers that's how it comes out. The myth of the "American Dream" and the pressure to "own your home" is strong, but making less sense for many these days.

Yep owning for your kids is damn right.

I thought I never hear this, "I can afford Highland Park". Now they are going to E LA or Lincoln Heights. Another bad area (my wife grew up there) turning much better by the second. Things are moving up rapidly in the fringes of South Central. Scary place to live, but if one can stomach that for 5 years, them can make a few bucks and get the heck outta there, or take that money and buy in Nebraska or...

[creaturecat]

In Vancouver most folks have another family living in the basement, to afford the mortgage.
usually the suite is illegal in nature. you are at the mercy of your neighbours. one call ends it all.

[look 171]

or they Air B and B a room to make a few bucks. Two families buy a 3 bedroom house and they all cram into it just to make it. Its happenning all over.

[djmcmath]

A lot of good perspective here. I've been watching the housing market in the Seattle region for a year or so now, and it seems pretty silly to me. Poulsbo, the small town where I live 90 minutes west of Seattle (pop'n ~10000) has water-view places in the $1MM range, and they're selling quickly. Comparing median income to housing prices shows a couple of percent difference every year for the last few, e.g. housing is getting expensive faster than people's pay is going up.

Even with housing prices going like they're going, rent is even worse. I could buy a place for less than I'm paying for rent right now. I just don't want to deal with the realistic possibility of a 15% drop in values and the 6% Realtor fee when I sell the place -- that kind of money adds up really quick. Maybe I'm being foolish; time will tell, I guess.

This is the kind of thread I love to read here; a lot of intelligent people across the country with solid wisdom.

[nostatic]

Originally Posted by djmcmath

Even with housing prices going like they're going, rent is even worse. I could buy a place for less than I'm paying for rent right now. I just don't want to deal with the realistic possibility of a 15% drop in values and the 6% Realtor fee when I sell the place -- that kind of money adds up really quick. Maybe I'm being foolish; time will tell, I guess.

I think it depends on a lot of variables. If you're under 40, have a decent downpayment, and think you're going to stay in the house/area for 5-10 years, then I think buying makes sense. In my case, I'm over 50, a downpayment would wipe out our rainy day fund (i.e. live for a year with no jobs), and I'm on soft money so the future is always fuzzy and if my job situation changed we'd likely get out of LA.

At this point, if we were to buy now the equity would really only benefit my son, and he's likely going to get his mom's house/equity so sorry kiddo . For me, the benefits of buying (tax break) are outweighed by the risks/downsides (property taxes, maintenance costs, risk of a market correction in the next 5 years and us needing to move).

As my wife noted the other day, right now is pretty much as good as it likely will get. We're both employed, live in a great neighborhood, and we enjoy what we have. As far as we've seen, the "golden years" are another myth that continues to be propagated. The only "asset" you have is your health, and the guarantee is that that will decline so you better enjoy your time now...

[djmcmath]

Originally Posted by nostatic

I think it depends on a lot of variables. If you're under 40, have a decent downpayment, and think you're going to stay in the house/area for 5-10 years, then I think buying makes sense. In my case, I'm over 50, a downpayment would wipe out our rainy day fund (i.e. live for a year with no jobs), and I'm on soft money so the future is always fuzzy and if my job situation changed we'd likely get out of LA.

Hmm. I'm 38 and think it's extremely likely that I'll move (within the region) within the next 3-5 years. It might make some financial sense, but I *really* don't want to buy a house here (15 minutes from work), then change jobs and find myself with a 2 hour commute and a house that I can't get rid of.

Thanks for the perspective.

[KNS]

Originally Posted by look 171

I thought I never hear this, "I can afford Highland Park". Now they are going to E LA or Lincoln Heights. Another bad area (my wife grew up there) turning much better by the second. Things are moving up rapidly in the fringes of South Central. Scary place to live, but if one can stomach that for 5 years, them can make a few bucks and get the heck outta there, or take that money and buy in Nebraska or...

How times have changed. I grew up in Highland Park (and Tujunga and a couple other palces..), we lived on Mt Washington. It was a neat area with a small artist community and a quick shot to downtown.

Edit: holy crap I clicked on our old house and it's pushing 1 mil for a 1900 Sq Ft house!

[nostatic]

Following the artists shows some of the trajectories. They used to be in Silverlake but got priced out. They used to be in Mt. Washington but got priced out. They are in Highland Park but are getting priced out. They are in Inglewood (that's where my wife's studio is), but will likely get priced out. Next is El Serreno (which is still the hood). Now West Adams (west of USC) and Leimert Park are getting hot and regentrifying.

We could buy a house in certain areas of LA - but then we'd have to live there. What's the point of owning a home if you don't like where it is and your commute is insane?

[Jeff Alton]

Houses in our neighborhood are selling like mad. The entire are is nuts. We live in a 2 square block area. 2 or 3 open houses every weekend, sold signs by Tuesday. Multiple offers, bidding wars on every property. Prices have just about doubled in the 5.5 years since we bought. Selling for 100+K over asking without any subjects.

Sure, its great if you are moving out of the area. Not really of any value if you want to stay where you are. If this was to happen 10 years from now I would sell in an instant and head off to my retirement home... I am still tempted to downsize as we don't need the size of home we currently have. Buy a townhouse around the corner that is big enough and purchase 2 rental condos 2 miles away with the balance...

Cheers

[look 171]

Originally Posted by nostatic

Following the artists shows some of the trajectories. They used to be in Silverlake but got priced out. They used to be in Mt. Washington but got priced out. They are in Highland Park but are getting priced out. They are in Inglewood (that's where my wife's studio is), but will likely get priced out. Next is El Serreno (which is still the hood). Now West Adams (west of USC) and Leimert Park are getting hot and regentrifying.

We could buy a house in certain areas of LA - but then we'd have to live there. What's the point of owning a home if you don't like where it is and your commute is insane?

I see you have been following the market closely. That's great. Leimert Park is a scary place and is not only getting hot but its been hot for about a year or more. We looked at a few flipped properties there a little over a year ago, and thery were already in the 5- 600+ range and that's in the fringe of S central. I have a duplex near there close to USC. West Adams is off the charts if one of those big old homes are restored to its original glory, they sell for loads of money. I knew, when it was the war zone, a young professor from SC hired us to restored this big old home in West Adams 15 years ago. I knew I need to take note because they are coming driving prices up. Todd, I really don't see El Serreno sky rocketing like many of these traditional affluent areas. I think its sitting near the top of their market. The hilly sections will go up a little more, but that's it. It will have to be great buy to make any money there.